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Canada's unemployment rate has fallen below U.S. levels for the first time in more than 26 years - another sign that the North American slowdown is less painful in Canada than in the United States, at least for now.

Canadian employers barely created any jobs to speak of in May, Statistics Canada said yesterday. Employment grew by just 8,400 positions, with part-time jobs rising by 40,600 positions, offsetting a big decline of 32,200 in full-time work.

But the unemployment rate managed to hold steady at 6.1 per cent. And at a time when the economy has stalled, with real gross domestic product contracting slightly in the first quarter, what's important, economists say, is that Canada's labour market is still steady.

"It's most notably not falling apart," said Douglas Porter, deputy chief economist at BMO Nesbitt Burns.

That's not the case in the United States. There, employers cut 49,000 jobs, and the jobless rate soared to 5.5 per cent from 5 per cent in April. It's the biggest one-month leap since February, 1986, leaving the unemployment rate at its highest point in 3½ years.

It's the fifth month in a row that employment has fallen, and points to widespread weakness in the American economy, analysts said.

While Canada's unemployment rate at 6.1 per cent may seem higher than the U.S. rate of 5.5 per cent, Canada measures unemployment differently than U.S. authorities. When Statistics Canada adjusts Canada's unemployment rate for American eccentricities, it finds that Canada's rate, in U.S. terms, is just 5.3 per cent.

It's the first time since February, 1982, that Canada's adjusted rate has fallen below the American rate. The gap between the two countries has been narrowing steadily for months, however, as Canadian employers continue to create jobs while U.S. employers lay people off.

Canada's better fortunes may seem puzzling when economic growth in the two countries is considered. The U.S. economy is growing faster than the Canadian economy right now, despite fears that the U.S. is in recession. In the first quarter of 2008, the United States posted a 0.9-per-cent annualized expansion of its economy, while Canada registered a 0.3-per-cent contraction.

But the slowdown in the United States has been more painful to a broader range of households and families than in Canada, where the contraction has centred around manufacturing and exports, economists say.

"If you focus on the direction [of the job market] we're getting better, and they're getting worse," said Dale Orr, chief economist at Global Insight Canada.

His firm forecasts that for this year, the U.S. unemployment rate will average 5.2 per cent but will peak at up to 5.9 per cent later this year. Canada will average 6.2-per-cent unemployment in Canadian terms, which, when converted to American terms, is lower than the 5.9-per-cent peak he expects in the United Sates.

"We will be better than them."

There are two key reasons that Canadian job markets are holding up better than in the United States, despite slower growth: Canada is making heaps of money selling its energy, while the United States imports oil and gas; and Canada has avoided the housing collapse that has devastated many households in the United States.

Energy prices have soared in recent months, and even though output in Canada's oil and gas sector isn't increasing in response to the higher prices, energy exports are bringing in large amounts of money, explained Avery Shenfeld, economist at CIBC World Markets.

The money has helped keep employment levels at record highs, and holds out hope that consumer spending will hold up even as the Canadian economy's actual output flatlines, he said.

As for the housing market, Canada's is losing some steam, but is not collapsing like in the United States, allowing employment to remain strong in the construction sector, Mr. Shenfeld said.

"They gave out mortgages to all comers, so their earlier boom was fuelled by poor decisions. They had to dramatically pull back," he said.

In Canada, "we didn't do that, so we can't have that crash."

The Canadian construction industry has added 101,200 jobs in the past 12 months, an increase of 8.9 per cent. A relatively healthy residential sector, coupled with expansion in the oil patch and increased spending by governments on infrastructure will work together to keep construction employment strong, said Global Insight's Mr. Orr.

While Canada is not about to see the job losses experienced in the United States, there are some worrying trends that suggest weakness ahead for Canadian labour, economists warned.

A shift to part-time work at the expense of creations of full-time jobs has been characteristic of the recent U.S. slowdown and most other slowdowns of the past, said Karen Cordes, economist with Bank of Nova Scotia. Canada saw a similar pattern in May as well as March, she observed.

In Canada, the full-time work force has grown by just 1.8 per cent over the past year, while part-time employment has jumped 3.0 per cent, and the number of unemployed people has risen 3.6 per cent.

Finance Minister Jim Flaherty put a positive spin on the employment figures yesterday, telling a Toronto investment management conference that "our job numbers are very good," as he pointed to "quite positive news in central Canada."

"In terms of manufacturing jobs - we've had some manufacturing job losses, as you know - the numbers are positive for the month of May in Ontario and Quebec, in both places more than 10,000 new manufacturing jobs. So this is a positive development in the Canadian economy."

Employment picture

Labour markets in both Canada and the U.S. are softening, but while Canada's employment picture shows a steady cooling, the U.S. is

hemorrhaging jobs. May marks the first time since 1982 that the U.S. unemployment rate has been higher than Canada's.


Job creation in May: +8,400 (+132,000 year to date ).

Jobless rate: Steady at 6.1%.

Hot sectors: Utilities, health care and, in a one-month blip, manufacturing.

Cold sectors: Agriculture, natural resources and professional services.

Odd fact: The province with the biggest wage growth? Saskatchewan, while among sectors, agriculture and finance have seen the biggest year-over-year pay hikes.

Quote of the day: 'Canadian job gains in May were the kind we can't count on in the next few quarters, being in improbable sectors and providing only part-time work.'

Avery Shenfeld, economist at CIBC World Markets


Job losses in May: -49,000, (-324,000 year to date).

Jobless rate: 5.5% from 5%.

Hot sectors: Health care.

Cold sectors: Everything else.

Odd fact: The jobless rate among teenagers was a whopping 18.7% last month while among blacks, it was 9.7%.

Quote of the day: Private-sector payrolls have plunged by 411,000 since December 'and we think anyone who believes that this is not consistent with an outright recession, mild or not, definitely belongs in the camp of new paradigmists.'

David Rosenberg, chief North American economist, Merrill Lynch

Tavia Grant

Sources: Statistics Canada, U.S. Labour Department, Bloomberg News

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